Prices Hamper Potential To Capitalize On Satisfaction Levels

Wednesday, 16 April 2014 12:08
News Editor

Faced with grim signals regarding the concerns of potential visitors to The Bahamas about the cost of vacationing here, the Bahamas Hotel and Tourism Association (BHTA) has argued that The Bahamas is both “uniquely positioned” to capitalize on rising visitor satisfaction levels and very vulnerable to consumer price sensitivities.

Releasing data that shows the most direct correlation to date between consumers’ preferences for a Bahamas vacation and price levels, the BHTA also noted that the number of first-time visitors who say they are “very likely” to recommend the islands of The Bahamas to others rose to record levels in 2013.

The Out Islands led the way, in this regard, with over 80 percent of visitors to the Family Islands stating that they would be likely to recommend the islands to others. 72 percent of Paradise Island’s visitors have stated that they are very likely to recommend it to others, while 70 percent of visitors to the Cable Beach area felt the same way.

The data was released in a presentation made by the BHTA to its members at a membership meeting held on April 3, where the organization briefed members on its position on VAT; tax reform, generally; and competitive challenges.

In an interview, Stuart Bowe, president of the BHTA and senior vice president and manager of Coral Towers at Atlantis Paradise Island, said that there has been a “slow, but steady increase in visitor satisfaction over the past several years”, but the country’s tourism sector cannot afford to rest on its laurels.

“It speaks well to the response from Bahamians about improving service delivery at all levels of our industry. The industry and the BHTA have invested considerable resources, along with the Ministry of Tourism and our education partners, in improving the quality of services. Individual hotels continue to invest heavily in training programs for all employee levels.

“In addition, the highly competitive global environment has forced hoteliers to become more efficient and improve service levels. The improving infrastructure changes have also added significant first and last impressions (but) there is still a long way to go,” said Bowe.

The Bahamas also benefits from a high level of customer awareness over regional competitors. In a survey of 1,000 people, who were asked to name an island vacation destination located in the U.S. or offshore, within a five hour flight, out of 32 different destinations, the Bahamas was the most frequently mentioned destination, gaining 726 mentions. Its next closest competitor in this regard were the U.S. Virgin Islands with 266 mentions.

However, data obtained by the BHTA, via a survey conducted for the Nassau Paradise Island Promotion Board by MMBY Global, shows that behind simply being more interested in visiting other destinations (as 57 percent of respondents indicated), lodging and flights that are perceived as “too expensive” were identified as the two most common reasons for not considering a Bahamas vacation.

Breaking this down further, data obtained shows just what people would be willing to pay for a vacation, including air fares and lodging. Comparing this with the average total air/room/ground transfer cost for a four night visit to various destinations, the BHTA concludes that competitors have a “clear price advantage on vacation transportation and hotel package costs”. While The Bahamas can at present draw on just 35 percent of the regional market share, competitors such as Jamaica, Cancun and the Dominican Republic can draw on as much as 57 percent of the market.

The data goes on to show the challenges The Bahamas has already faced in filling its rooms in 2013, in comparison to its regional competitors. In 2013, The Bahamas’ occupancy rate stood at 58.6 percent, and overall arrivals fell by 5.7 percent over 2012. Meanwhile, in Barbados, occupancy stood at 63.4 percent; in Jamaica, 68.1 percent; in both Aruba and Cancun occupancy stood at 65.8 percent; and in the Dominican Republic, occupancy stood at 70.9 percent. In all countries, arrivals grew, except The Bahamas and Barbados.

Price is key

Asked if the BHTA perceives the price difference between a Bahamas vacation and those elsewhere as primarily responsible for the difference in our occupancy rates and arrivals versus other regional competitors, Bowe said, “It is clear to us that price is the primary variable contributing to our lower occupancy levels. Consumer data is consistent over the past five years in showing that price is now the primary motivator in buying decisions.”

The concerns about price were also shown to have come about at a time when the government’s revenue take from the industry in terms of taxation has increased significantly. With room tax rising from six to 10 percent, revenue from hotel room tax rose by over 19 percent in 2013, and $53 million in three years. Meanwhile, the government collected $46 million more in 2013 from departure taxes than in 2010, and $211 million more in three years. This came as departure taxes on air passengers rose to $25 from $15 since 2010, while the effective tax on sea-going visitors has risen from $7-8 to $13-14.

Bowe said, “Given our existing cost structure, it is difficult to reduce prices. We need to avoid further increases by holding the line on those cost inputs we can control, taxes being one of them.

“Our industry is making some progress on reducing its energy costs, thanks to improved efficiencies and a reduction in the fuel surcharge costs last year. We believe more can be done to reduce energy costs by both hotels, through public policies, and with greater efficiencies by the Bahamas Electricity Corporation (BEC).

“A key cost factor is labor, which is the highest in the region and while we are not proposing a reduction, we do believe we need to continue to challenge ourselves to be more productive and offer exceptional value for the prices we command. Our customer satisfaction levels have improved in recent years but we must, as a nation, show greater commitment to offering exceptional service in everything we do.”

The BHTA is calling for the government to re-think plans to implement VAT on July 1, saying that to do so would threaten the viability of the tourism industry, the government’s main economic engine. It has commissioned a study by Ernst and Young exploring the potential impact of VAT and alternative tax and fiscal reform measures, due for completion shortly, which it will use to ground its final recommendations to the government on this front.

Bowe said he believes government officials are “sensitive” to the industry’s concerns about how VAT could impact price competitiveness.